Gold at Record Highs, Which Way Now?
Mark Brown, October 7th, 2009
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Gold traders and investors have been waiting for a clean break above Gold's nominal all-time high, recorded back in March 2008, but the process has been anything but sure and swift.
Having risen approximately 300% since the start of its bull run in 2001, Gold has far outpaced the investment gains in virtually every other investment class, including stocks, bonds, real estate and cash. Gold bugs feel certain that this time will be the ‘big one,' and that the precious metal will likely hit $2,000 - $3,000 an ounce, if not higher. Commodity experts like Jim Rogers also believe that Gold will continue to surge higher, right along with most energy, food and base metal commodities; in fact, some believe that the bull run in commodities still has another 5 -10 years to run higher, given the tremendous demand from developing economies for massive amounts of raw materials. And certainly, the tremendous amounts of deficit spending being seen in nations across the globe have also caused many investors to flee to the perceived safety of Gold as a first-class inflation hedge. So, there are plenty of fundamental reasons for Gold to continue to march higher over the next few years, no argument there. But what about the technicals on the charts- what are they telling us right now? Are there sound technical reasons why traders and investors should prepare to buy more gold on a confirmed breakout above the March 2008 high - or not? Let's have a look at the long-term chart of cash Gold and see what the monthly price bars are telegraphing to us.
Chart by: MetaStock
There is no doubt about the long-term nature of this uptrend in Gold - it's very much intact, with a current price far above both its 20 and 50-month exponential moving averages (which are also maintaining a healthy degree of spread between themselves, even as they continue to slope upward), an Aroon (14) trend intensity indicator that has recently swung to the extreme bullish end of its range, and a Metastock CS Scientific expert advisor (see gray ribbon at bottom of chart) that is also confirming the presence of a strongly trending move. There is, however, one glaringly negative technical clue on this chart, and that is the current state of the RSI (14) indicator, one that is exhibiting an unusually bearish amount of negative price-momentum divergence. Even though Gold actually set a new cash high before pulling back intra-month (in September 2009), the RSI (14) failed to confirm the new high, and this should be something that every Gold trader and investor needs to be aware of. Even with that little ‘bugaboo,' this chart has an undeniably bullish posture, attitude, presence; whatever you care to label it with; by all account this looks like a commodity ready to make a substantial break to higher levels - if not now, then in the coming months.
